Exporting the Bubble to Asia

By Shlomo Maital


 Suppose, just suppose, you have a bad cold or a case of the flu.  Do you cough into your elbow, avoiding infecting others, or do you blast your germs right into their faces?    Obvious, right?

    Why then are U.S. and European banks doing the latter – infecting emerging markets (e.g. Asia) with their financial crisis, after ruining their own economies?

    In today’s Financial Times, Claire Jones reports that bank lending to emerging markets has reached record levels.  She reports:

 “Banks piled into emerging markets at a record pace earlier this year, highlighting the scale of the global search for yield that has partially reversed since the US Federal Reserve said it intended to slow its bond buying.   Cross-border lending to emerging markets surged by $267bn, to an estimated $3.4tn, in the first quarter of 2013, the Bank for International Settlements said on Sunday.  The Bank for International Settlements (the central banks’ central bank) said the 8.4 per cent increase was by far the highest recorded, with the amount of interbank lending rising by almost $200bn, or 12 per cent.    … 85 per cent of the rise was accounted for by more lending to China, Brazil and Russia.    The publication of the figures comes as the US Federal Open Market Committee gears up for its policy meeting, ending on Wednesday, when it could decide the timing and pace at which it will slow its $85bn worth of monthly bond purchases.

    Jones adds:  “With interest rates close to zero across advanced economies and liquidity abundant as a result of their central banks’ mass bond-buying sprees, credit has flowed into emerging markets in recent years as lenders and investors sought higher returns. According to the BIS data, interbank lending to emerging markets in the Asia-Pacific region alone has doubled since the investment bank Lehman Brothers collapsed five years ago.”

   What is going on?

  Simple.   America’s Fed, under Greenspan,  purposely created a housing bubble by bashing interest rates down to near zero and flooding the market with cheap credit.  That led to the global financial collapse.  To fight the recession, the Fed has pumped $85 b. in new credit in the markets every single month (by buying bonds).  But what to do with the money?  Banks are cautious about lending it and financial returns are miniscule.  So, why not export the money to emerging markets, where rates are higher?  

    The result has been to help foster a housing bubble in China, in Singapore and in other countries. 

    This is just one more example, though an extreme one, of how the U.S. Fed runs its monetary policy solely for the interest of the United States, while generating major collateral damage to other nations.

      It’s time to create a global currency, and run it through a global Central Bank.  The U.S. dollar long ago lost all claim or right to its role as the world’s money.  It is far too selfish.